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Briefing of the Minister of Economic Development of the Russian Federation Alexey Ulyukaev on the results of tripartite consultations at the Russia-Ukraine-EU Ministerial level

03.12.15

Good day, ladies and gentlemen.

I just got back from our tripartite negotiations, the Ministerial meeting of the European Union-Ukraine-Russia on the possibility of removing the concerns which Russia has in connection with the risks to its businesses from the implementation of this Agreement.

We have been working on it for a long time. This was already our 5th Ministerial meeting. We held more than 10 meetings of experts. And today, too, the meeting was quite positive. I had a bilateral meeting with the Commissioner for Trade Ms. Malmström and we held two trilateral sessions.

If this conversation and the positions we have achieved, were taken by the states a year ago, I would consider that we are moving well. But since we have a month left, then, of course, the situation remains a cause for concern.

We considered several options for a possible agreement. From our point of view that was prepared by the colleagues from the EU is not acceptable. First of all, for the reason that this document is not legally binding, this statement about the willingness of the parties to seek solutions to problems as the actual damage will be identified. We say that it is too late to solve the problem when damage has already appeared, it is necessary to create a situation that will not allow this damage to appear. So we're talking about that we need to formulate a legally binding structure, where each party would have its obligations.

The problem is that the implementation of this agreement implies sometimes changes in the legal field. And the extent of the commitments made by Ukraine to Russia in our bilateral and multilateral agreements within the CIS is reduced. They want from us to agree with the degree of reduction of obligations of our Ukrainian partners while maintaining our commitments in preferential trade with zero customs tariff. We believe that it is unjust and economically flawed. Therefore, we submitted our own proposals, our version of this document, which took into account a lot of things that suggest our European colleagues, but we also introduced a commitment mechanism - first, we agree on principles, and then we establish working groups that monitor and keep track of how these risks materialize or not materialize, and make a decision.

And so what a specific mechanism we've proposed. The mechanism consists in the fact that the parties had a three-way system of information exchange in the customs area, allowing to track the origin of products and close opportunities for products from third countries to be qualified under preferential trade regime between Russia and Ukraine. We proposed maintaining a system of conformity certificates, with which now the Russian exporters are working on the Ukrainian market, and the parallel functioning of two systems of standards, which are being implemented by Ukraine - European standards, and which Ukraine must meet as part of the agreement of the CIS – GOSTS, that they had a parallel circulation and entities would be able to choose. The same thing was offered in the field of sanitary and phytosanitary control.

In addition, we have proposed a solution in the area of energy, the continuing parallel operation of this system between Ukraine and Russia. Formulations that provide an acceptable investment climate for Russian and Ukrainian companies, not worsening it, not taking measures, damaging their investors.

We agreed with many of our colleagues. Nevertheless, we still have no acceptable document, and we, in our joint statement following the meeting, authorized to continue the work of experts. We also agreed to continue work both at the expert and ministerial level, but because time is short, we need some extraordinary efforts to achieve consent in this regard. However, we believe that this work will be conducted on the basis of that project, which we provided, colleagues have taken an extra pause; to some positions they have already responded, and with regard to some positions they have taken an extra pause to study them, but we all need to understand that they can study it as much as they like, but just after 1 January 2016 they will have to study it  in a different economic reality.

Such were the results of our work. In addition, I had today a bilateral meeting with the Deputy Prime Minister of Belgium and Vice-Prime Minister of Luxembourg. A very positive agenda for preparing our session of the Intergovernmental Commission, which will be in February, and strengthening our investment, trade and finance projects.

Question: Is it possible, summarizing your words, to conclude that while Russia, EU and Ukraine have not agreed and Russia is likely to enter the food embargo?

Alexey Ulyukaev: Russia, Ukraine and the European Union have not agreed, but it is not relevant to the food embargo. These are two completely different legal segments. Food embargo has nothing to do with the sanctions against the Russian Federation, to which Ukraine acceded in August of this year, and it has nothing to do with how we work in the field of the agreement on the implementation of the free trade zone

Here we are talking about something else, that if, prior to January 1, agreement is reached, Russia only is bringing in conformity the scope of the obligations that it has towards Ukraine with those Ukraine will bear against Russia. Ukraine reduces its commitments in the sphere of technical regulation and so on. Russia reduces its commitments in the field of preferential trade regime, and introduces the ordinary trade regime, the most favored nation treatment, the regime of those industrial tariff of the EurAsEC, which is free.

Question: Do we understand it correctly that the regime of food embargo is entered in any course of events, regardless of your negotiations? The second clarifying question is about the abolition of FTA ...That is, you agreed and instructed experts during a certain period to sign mutually binding document, or you are still going to hold some discussions? It is not clear what awaits us in December.

Alexey Ulyukaev: So there are no fatal obligations on food embargo. It is not connected with the negotiations about the free trade area, it is connected with the sanctions regime. This is the first. Second - the experts will work but the date for the next Ministerial discussion has not been appointed. It is therefore very likely is a scenario in which by January 1, 2016 we will have not received the agreement and non-preferential trade regime will have not been entered.

Question: Today the Government issued a resolution on Turkey: it introduces food embargo against Turkey, but it is somehow more limited than the one in respect of the EU, there are fewer positions in it. Why was this decision rendered? How will this decision regarding Turkey affect inflation in Russia in the near future and the first half of next year?

Alexey Ulyukaev: The Government Resolution is signed and it is drawn up in accordance with the Decree of the President. This is a framework of special economic measures, which are imposed in case of aggression and specified in terms of merchandise trade. The Decree refers to visa requirements, tourist exchanges, transportation, etc.

Indeed, they are specified in the area of food products. But again there is no parallel with the food embargo, which was introduced last year concerning the countries of the European Union, USA, Japan, Australia, and Canada. Because it was a response to the sanctions. So the embargo principally included all agricultural commodities. Here we are talking about another combination of measures. Turkey did not join the sanctions. It acted as an aggressor, so it is the set of measures we considered to be  appropriate in this case, trying, on the one hand, to make it sensitive to countries who have committed hostile aggression and, on the other hand, to minimize the risks for Russian producers and consumers including the risk of inflation that you mentioned.

As to whether the inflation risk realizes or not, it depends on how quickly we will be able to replace those amounts of food that come from Turkey with products from third countries or produced in Russia. This is not an easy but quite feasible task. We are conducting relevant work with producers of these products in the Middle East, North Africa and other parts of the world. At the moment I can't say how quickly we can manage it.

Question: Alexey Valentinovich, will you please tell how long will these sanctions against Turkey last? There is no deadline there. And the second question – there are two important projects: Turkish Stream and Akkuyu station. Does the suspension of the activities of the Intergovernmental Commission freeze these projects? If not or yes, what risks do these sanctions bear?

Alexey Ulyukaev: First. These measures, indeed, are of a temporary nature. It is evidenced by the Law on social and economic measures imposing temporary restrictions. Apparently, the temporality is determined by the fact whether a source of danger to the independence and integrity of the state and the rights and freedoms of its citizens is still relevant or not.

Therefore, I do not exclude the possibility that these restrictions can be differentiated: some earlier, some later. For example, that is connected directly with the safety of citizens who are on the territory of the Republic of Turkey or, for example, visa requirements. Maybe they will be applied for longer period than the restrictions of commodities on Russian territory. These are my assumptions. Indeed, the Russian Government has no desire to impose permanent restrictions. We understand that any economic restrictions eventually relate to people, and we wish they acted a short time. But it doesn't depend only on us.

As for the major investment projects there is yet no decision about their immediate freezing, delays or withdrawal of their funding. Therefore, we believe that they will be continued in the form in which they operated at the time of their adoption.

Question: This resolution refers to the termination of the Intergovernmental Commission, and many sources and experts conclude that if communication in the framework of the Intergovernmental Commission is frozen then there would be suspended talks on Turkish Stream and the NPP.

Alexey Ulyukaev: There is no causal link here, the Intergovernmental Commission is a different issue, but the work of economic entities, and in this case we are talking about Gazprom, Rosatom companies, in no way falls under these restrictions. These are completely different tracks, and this does not mean that all economic entities terminate their cooperation.

Question: Will consolidation of investment projects continue?

Alexey Ulyukaev: Once again. They are not frozen by some Government decision. In what direction economic entities will continue to work - it is up to them. The Government didn't freeze their operation.

Question: Could you reach an agreement today during the three-party negotiations?  Could you specify, on what issue you commented. What are you going to do, and what not to do?

Alexey Ulyukaev: For example, the parties have agreed that Russia and Ukraine will maintain a favorable investment environment to their respective companies from Russia and Ukraine. Our suggestion on this was not rejected.

Question: When the experts will continue work on the Russia – Ukraine agreement?

Alexey Ulyukaev: I hope they're working on it. We have not defined the date of the next expert meeting or future meetings, but the work regarding this issue is being done in tight mode right now.

Question: You said that there can be indirect impact on inflation, if we don’t quickly replace Turkish fruit and vegetables. Do you think this may affect the restriction of the Central Bank decision on key interest rate and could we expect changes in the next financial year?

Alexey Ulyukaev: From my point of view, it should not have any influence to the policies of the Bank of Russia because the Central Bank's policy is traditionally focused on and related to how the monetary factor impacts on underlying inflation. Campaigns associated with a short shock proposal should be considered in the situation, and this may be a short shock proposal. As to whether the rate can be decreased or not, I believe that it can.

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